Shrinking Financial Aid Curbs Impact of Slowing College Tuition Increases

By Douglas Belkin | Featured on WSJ

Relatively modest rise in 2015-2016 amplified by near-zero inflation and pullback in grants

Tuition increases at U.S. colleges have plateaued after decades of steep growth, but stagnant wages, near-zero inflation and a slight pullback in grants have amplified this year’s relatively modest rise.

Published tuition for the 2015-16 academic year rose 2.9% for in-state students at four-year public schools—the same increase as last year. But adjusted for inflation, the gain was 2.7% this year, compared with 0.9% last year, according to a report released Wednesday from the College Board, a New York nonprofit that tracks university costs.

In-state students attending public four-year institutions are now paying $19,548 on average for tuition, fees and room and board, up from $18,931 in 2014-15. Private-school costs rose $1,476 to $43,921 over the year.

“Prices have been increasing for a long time faster than the rate of inflation, but they’re not accelerating,” said Sandy Baum, co-author of the College Board’s report. “Prices just always go up faster than average prices in the economy.”

The average annual increase in public university college tuition and fees between 1985 and 2011 was nearly 5% in inflation adjusted dollars. Over the past five years, the average rise has dropped below 3%.

Since 2005-06, the annual sticker price to attend a four-year public school jumped by nearly $5,000, while the cost of a four-year private school increased by almost $9,000 in inflation-adjusted dollars.

As a result, students who took out loans and graduated with a bachelor’s degree in 2014 carried $28,950 in debt on average, a 56% increase over their counterparts a decade earlier, according to a report released last week from the Institute for College Access and Success released.

The published price of a school varies from the actual cost after taking into account grants from the school and tax benefits. Part of the reason this year’s increase will hit students harder than the numbers may indicate is that aid at four-year public schools shrank slightly in the past two years, reversing a long pattern of annual increases.

The published price also masks the trend toward differentiated tuition by undergraduate major, a practice that is spreading. There is also significant variation in tuition between states. For instance, average in-state tuition and fees at four year public colleges in Wyoming are $4,890 this year, according to the College Board report. In New Hampshire, they are $15,160.

Likewise, net costs vary tremendously by student. During the 2011-12 school year, 62% of dependent students from families with incomes below $30,000 at four-year public schools received enough grant aid to cover all of their tuition and fees, according to the College Board report. For families with incomes of $106,000, just 8% had free rides.

The cost of public universities tracks closely with the economy, tax revenues and state subsidies to higher education. Over the past few decades, states have pushed an ever greater share of higher-education costs to students in the form of tuition and fee increases. That trend is amplified during recessions.

Three years of moderating prices for public universities reflect the third year of rising state subsidies, said George Pernsteiner, the president of the State Higher Education Executive Officers Association, which tracks state spending on higher education.

Beyond an increase in funding, more states are also mandating that schools use the additional funds to put a lid on tuition increases.

“You’re seeing more and more states saying very explicitly, we want you to use this money to hold down tuition,” Mr. Pernsteiner said. “It was getting to the point where people just couldn’t afford to pay, even after financial aid.”

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